Inflation trajectory more favorable than anticipated, says Shaktikanta Das

The RBI maintained status quo during the fourth bimonthly rate-setting panel that started its three-day deliberations on Wednesday amid rising global commodity prices and a need to contain inflation in India.

“Economic activity has evolved over the last two months, while CPI inflation for July and August has been lower than anticipated,” Das said. He added that core inflation, however, has remained sticky

The high global commodity and crude oil prices, along with domestic coal supply constraints have been hurdles for inflation control. There are fears this could dampen a demand recovery that is underway across multiple sectors in India.

“The key driver of disinflation has been the moderation in food inflation, despite elevated fuel prices and sticky core inflation,” he added.

Das said the central bank will ensure that inflation remains within target range, and that the current scenario requires close vigilance.

The RBI has been asked by the Centre to ensure retail inflation remains at 4% with a margin of 2% on either side. The CPI inflation was at 5.3% in August.

A faster inflation on account of supply disruptions will be a challenge for the CPI-targeting RBI, which is intent on keeping borrowing costs at a record low to support durable economic growth.

The Reserve Bank has projected the CPI inflation at 5.3% during 2021-22: 5.1% in the second quarter, 4.5% in third, and 5.8% in the fourth. CPI inflation for the first quarter of 2022-23 is projected at 5.1%.

“As pandemic scars heal and supply conditions are restored with productivity gains, a sustained easing of core inflation can be expected, which will reinforce the growth-supportive stance of monetary policy,” RBI had said.

The projection for real GDP growth is retained at 9.5% for FY 2021-22. This consists of 7.9% in Q2, 6.8% in Q3 and 6.1% in Q4 of 2021-22. Real GDP growth for Q1 of FY 2022-23 is projected at 17.2%.